managerial economics

QUESTION ONE (20 MARKS)

(a) Using regression equation estimate the demand function for meals served in ordinary hotels in Nairobi. The data regarding price charged and number of meals served are as follows:

HOTEL	1	2	3	4	5	6	7	8
Price per meal in shs.	30	36	38	281	26	38	32	28
Meals served per day	200	180	170	220	240	180	210	200

Interpret the value of intercept term a and b-coefficient of the estimated regression equation

Y= a + bx

(b) Discuss the factors that are likely to limit the quality demand forecast

(c) Examine the practical importance of demand forecasting

(d) A seller of textile cloth wants to lower the price of its cloth from shs. 150 per metre to shs. 142.50 Per metre. If it’s present, sales are 2000 metres per month and further it is estimated that its price elasticity of demand for the product is equal to 0.7. Show

i. Whether or not his total revenue will increase as a result of his decision to lower the price and

ii. Calculate the exact magnitude of its new total revenue

QUESTION TWO (20 MARKS)

(a) Examine the causes of monopoly market structures

(b) Using well labelled diagrams illustrate and explain how equilibrium price and output are determined within the short run under monopoly

(c) Compare and contrast pure and perfect markets under the following sub-headings

i. Demand curve facing the firm

ii. Optimum resource allocation

iii. Management decisions variables

(d) Describe the relationship between average variable cost and average product and between marginal cost and marginal product.

(e) How is U-shape of average variable cost curve explained by the law of variable proportions